Should we be managing our parents retirement corpus?

I see more and more young earners trying to manage the retirement corpus of their parents. In a way, this is healthy and in a way dangerous.

Let us face it. Most retirement corpuses are not healthy enough. In the sense that one cannot wield them to generate an inflation-protected post-retirement income. This is especially true of our parents generation. Most of them never had any experience with equity or volatile instruments.

When a young earner tries to invest that corpus (or a part of it) in instruments unfamiliar to the parents in order to “generate better returns”, the results may not always turn out the way we want.

The first step in retirement planning is to recognize when senior citizens purchase an annuity. Or in other words, when can part of the corpus be exposed to volatile/risky assets and when to stick to the safety of senior citizen savings schemes and bank fds.

Utmost caution is necessary when working with a retirement corpus. A single market crash can destroy morale and self esteem. The usual rhetoric of “volatility = notional loss and it will all turn out okay in the end” does not apply to retirees.

I recommend first checking whether a monthly income that increases at least at the rate of 5-6% a year can be generated for the first 10-15 years in retirement using only ~ 60% (or less!) of the corpus.

Even otherwise, being from a different generation, they may not be entirely comfortable with handling volatility. Therefore, they will have to be made familiar and comfortable before going ahead with the plan suggested by the children.

Most parents get a pension, either from the government or from a superannuation plan. If this sum is healthy then, one might actively manage the remaining corpus (if any). However, they are at a stage in life when sudden medical expenses maybe necessary (a health cover is not a one-stop solution). Therefore, the room available to “play with” is rather limited.

Somehow I feel, it is better if we do not thrust our new-found and often preconceived notions of financial literacy onto our parents.

Unfortunately, many parents are to be blamed too. When FD rates started going down, they wanted other avenues which gave “better returns”. We all need to remind ourselves from time to time that there is no free lunch.

There are many posts on managing a corpus after retirement at freefincal. The most important ones have been compiled into a free e-book: Post-retirement income generation strategies. Do check it out.

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About the AuthorM. Pattabiraman(PhD) is the author and owner of freefincal.com. He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Follow @freefincal “Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
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3 Comments

Pattu sir thanks Can you make excel monthly tracker spreadsheet .I found some websites but that are american in which year begins with Januarary month and in india we start our financial year from April. If we use american spreadsheets than it lacks incoherence.plz make it for us.Thanks

This quote should be printed in gold in every blog that is coming nowadays.

“Somehow I feel, it is better if we do not thrust our new-found and often preconceived notions of financial literacy onto our parents.”

It is really funny that the young generation grown up during post globalization or post 2000 think they are smart because they put money in share market and all other people are fools

during recent floods, i personally witnessed this generation swiping credit cards for buying brinjal, queuing up for hours in front of atm because no petty cash at home and furiously calling their banks to postpone their emi payments because internet was down